Joint and Several liability – Law Commission recommends minor changes as it affects the building sector
In this month’s article I wish to focus upon a very recent Law Commission paper addressing whether there remains a need to alter the principle of joint and several liability, or put in more familiar terms, “the last man standing” rule.
Example of application of last man standing rule.
A owns a leaky building which costs $500,000 to repair. She brings proceedings in the High Court to recover her losses. She brings a claim against the builder, the developer and the Council. Judgment is entered as against builder (20%), developer (40%) and Council (40%). The developer is in liquidation and is nowhere to be found, the builder is still trading and is locatable, the Council continues to operate as a territorial authority. A (on advice from her solicitor) pursues Council and Council alone for the $500,000 judgment amount. Council meets the payment but then seeks from the builder his 20% contribution which he meets.
The key objective of the Law Commission paper was to consider whether the last man standing rule ought to be retained or instead replaced or amended, either generally, or in relation to particular professions or industries, including the building and construction industry, auditors and accountants.
Territorial authorities have wanted changes to this rule which leaves them as the party regularly meeting the full liability to leaky building owners, as the other construction defendants are no longer available for pursuit.
Law Commission Recommendations.
1. The ultimate policy choice the legislature has to make is whether the liable defendant or the innocent plaintiff has to bear the risk of the insolvency of some of the culpable parties. The Law Commission’s first recommendation is that the last man standing rule remains where more than one party is in breach of obligations imposed through tort, equity or contract, and these breaches together cause the same loss. However the Law Commission also made these further recommendations.
2. In response to the criticism that the last man standing rule makes parties with only minor responsibility disproportionately responsible where there are insolvent parties, it recommends that the Courts/Tribunals be empowered to grant relied to a minor party. In a case where a Court decides that relief is warranted, the court must balance the interests of the plaintiff and minor liable defendant, and ensure that the plaintiff will still receive an effective remedy.
3. In situations where there is available more than one solvent defendant, under the last man standing rule a plaintiff was free to collect against his most financially robust defendant (typically the Council in leaky building litigation), and the Council was left with the prospect of only being able to collect from the other solvent party the Court allocated portion. Using the example above, Council is limited to collecting the 20% portion of liability allocated as against the builder yet pays the remaining 80%. The Law Commission recommends that available/solvent defendants ought to share the make up of the uncollected portions of allocated liability, on a proportionate basis based upon the apportionment of the awards previously made. Using the example above, this change would mean that the builder would still have to meet 20% of the missing contribution from the insolvent developer.
4. The Law Commission noted that the residential construction industry particularly local authority participants, were specifically at risk from injustices occurring as a result of the direct application of the joint and several liability principles. The Law Commission recommended the introduction of caps on liability for building consent authorities, for new liabilities arising after leaky home claims have been dealt with. The proposal went so far to suggest that the liability of local authorities ought to be capped at $300,000 for single dwellings, and $150,000 per unit for multi-unit complexes, although these numbers were to be regularly reviewed so that market forces on price were applied.
The last man standing rule remains firmly in place at this juncture. The proposed changes do go some way to easing the one off disproportionate meeting of liability by some of the more minor parties involved in construction liability scenarios, but it will be interesting to see whether the recommendations are brought to life by a parliament now entering the build up to an election.
NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision to anyone who relies on the information contained in this article.